Atlantic City will soon be hitting the bond market to fund deferred pension and healthcare contributions.
The city council approved a bond ordinance Wednesday evening by a 6-3 vote enabling up to $55 million of borrowing to fund 2015 state health and pension benefits.
Atlantic City was granted state approval that year to defer $37.2 million in pension and healthcare payments to avoid a large tax hike when it was facing a $101 million budget shortfall. The city will owe around $47 million along with a 10% interest cost for these obligations by the end of 2018.
The upcoming bond sale would bring Atlantic City’s outstanding bonded debt to just under $400 million, according to city officials. The city has not set a date yet for the borrowing or finalized when the bonds will mature.
Atlantic City will back the bonds through Investment Alternative Tax funds, which are derived from taxes on gambling revenues. Under New Jersey’s Atlantic City takeover, which took effect in November 2016, IAT revenues are directed to pay down city debt or for debt service payments.
Marc Pfeiffer, assistant director of Rutgers University’s Bloustein Local Government Research Center, said Atlantic City has no choice but to tackle the 2015 employee benefit payments this year and that bonding for the obligations is more attainable than implementing a large property tax increase. He said the city is better positioned to borrow than in previously years after the state takeover yielded budgetary savings and two successful 2017 bond sales to finance casino property tax appeal settlements.
“The city has to address the liabilities,” said Pfeiffer. “They are on the right path.”
Atlantic City’s general obligation debt is rated deep in junk territory at CCC-plus from S&P Global Ratings and Caa3 from Moody’s Investors Service. The Jersey Shore gambling hub nearly defaulted in late 2016 before the state intervened.
"The financing plan adopted by City Council last night furthers the best interest of the city and its residents," the Department of Community Affairs said in a statement Thursday. "Without this solution, the city would have been forced to significantly raise property taxes this year on its residents."
The press office for Atlantic City Mayor Frank Gilliam did not immediately respond to a request for comment on the bond ordinance approval.